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Knowledge Management Research & Practice (2008) 6, 173186

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Tapping tacit local knowledge in emerging markets the Toyota way


Kazuo Ichijo1 and Florian Kohlbacher2
ICS, Hitotsubashi University, Tokyo, Japan; German Institute for Japanese Studies (DIJ), Tokyo, Japan
2 1

Correspondence: Florian Kohlbacher, German Institute for Japanese Studies (DIJ), Jochi Kioizaka Bldg. 2F, 7-1 Kioicho, Chiyoda-ku, Tokyo 102-0094, Japan. Tel: 81 3 3222 5944; Fax: 81 3 3222 5420; E-mail: kohlbacher@dijtokyo.org

Abstract This paper presents insights from two case studies of Toyota Motor Corporation and its way of global knowledge creation. In 2004, Toyota announced an initiative to increase the self-reliance of overseas manufacturing facilities, especially in emerging markets. In 2005, Toyota Peugeot Citroen Automobile, an international joint venture between Toyota and Peugeot in Koln, Czech Republic started the production of small compact vehicles in order to react to the changing European customer market. We will show how Toyotas knowledge creation has changed from merely transferring knowledge from Japan to subsidiaries and affiliations around the globe to a focus of creating knowledge and tapping tacit local knowledge in foreign markets by local staff. In fact, Toyotas new strategy of learn local, act global for international business development and its knowledge-based approach to marketing proved successful for tapping rich local knowledge bases, thus ensuring its competitive edge and global lead in the automotive industry. Knowledge Management Research & Practice (2008) 6, 173186. doi:10.1057/kmrp.2008.8
Keywords: case study/studies; competitive advantage; knowledge creation; knowledge management strategy; innovation; inter-organizational; knowledge management practice; knowledge sharing

Introduction
Research and academic writing on Toyota are proliferating and Toyota frequently serves as a role model for both academics and business practitioners. Yet, with few exceptions (e.g. Dyer & Ouchi, 1993; Dyer & Nobeoka, 2000; Dyer & Hatch, 2004; Liker, 2004; Liker & Choi, 2004; Evans & Wolf, 2005; Nonaka & Peltokorpi, 2006), the mainstream of the Toyota literature has hardly touched the fundamental issues of knowledge creation, sharing or organizational learning as key drivers behind Toyotas remarkable success. Especially regarding the process of knowledge creation at Toyota, the extant literature is surprisingly silent. Besides, there is also a dearth of studies about Toyotas way of exploring foreign markets and transferring knowledge across borders. As Ichijo & Nonaka (2007, p. 3) correctly note, the success of a company in the twenty-first century will be determined by the extent to which its leaders can develop intellectual capital through knowledge creation and knowledge-sharing on a global basis as knowledge constitutes a competitive advantage in this age. Therefore, this paper aims at contributing to close this disconcerting gap by discussing Toyotas way of global knowledge creation. Drawing from empirical case material, we reveal Toyotas strength and ability at creating and leveraging knowledge both locally and globally, specifically in tapping tacit customer, competitor and supplier knowledge which can be seen as marketing knowledge (Kohlbacher, 2007) in emerging markets. By

Received: 3 March 2007 Accepted: 27 February 2008

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analyzing and highlighting Toyotas strategic way of global knowledge creation, we contribute to both the global knowledge management and the international marketing literature. This paper is structured as follows: First, the relevant literature is reviewed, giving an account of the transfer and creation of marketing knowledge and knowledge creation and transfer in the Japanese automotive industry. Then, the research methodology is presented, followed by two case studies of Toyota Motor Corporation. The subsequent discussion section first analyzes the Toyota way of strategic knowledge creation and then presents the lessons learned for global knowledge management in general. Last but not least, implications for further research are put forth.

Literature review
Transfer and creation of marketing knowledge For more than 10 years the marketing literature has struggled to come to an understanding of the nature of marketing knowledge, and even though contributors to the debate all agree on the importance of knowledge to the marketing discipline, beyond that there is no common ground unifying scholars (Kohlbacher, 2007; Kohlbacher et al., 2007). Nevertheless, there seems to be no doubt that in marketing, a wide array of knowledge needs to be created (Schlegelmilch & Penz, 2002, p. 12) and that the creation of marketing know-how is the most important function of marketing in the global knowledge-based economy (Achrol & Kotler, 1999). Marketing knowledge can be defined as all knowledge, both declarative as well as procedural, concerning marketing thinking and behavior in a corporation (Kohlbacher, 2007, 96). This definition includes both tacit and explicit knowledge about products, markets, customers, competitors, partners, marketing processes and marketing strategy. It also includes experiences of past marketing efforts such as new product introductions, etc. as well as future expectations. Note that a finer and narrower definition of marketing knowledge leads to the definition of one of these subunits of marketing knowledge, such as customer knowledge, competitor knowledge, etc. Bennett & Gabriel (1999) correctly note that marketing requires knowledge of customers and their preferences, competitors, products, distribution channels, service providers, laws and regulations, and general management practices. Especially the continuous need to learn about customers and competitors and to exploit such knowledge to stay ahead has frequently been stressed and discussed (cf. e.g. Davenport & Klahr, 1998; Davenport et al., 2001; Gibbert et al., 2002; Chaston, 2004). Indeed, customer focus and customer knowledge co-creation are crucial keywords in this context (cf. e.g. Prahalad & Ramaswamy, 2004; Gulati & Oldroyd, 2005; Lawer, 2005), as well as the concept of market orientation, which reflects a [firms] ability to internalize the marketing

concept as a primary organizing principle of the firm (Baker & Sinkula, 2005, p. 483). A strong market orientation manifests itself through customer-focused market-oriented learning (cf. e.g. Kohli & Jaworski, 1990; Narver & Slater, 1990; Jaworski & Kohli, 1993; Day, 1994b; Slater & Narver, 1995), and firms with strong market orientations prioritize learning about (1) customers (e.g., likes and dislikes, satisfaction, perceptions); (2) factors that influence customers (e.g., competition, the economy, sociocultural trends); and (3) factors that affect the ability of the firm to influence and satisfy customers (e.g., technology, regulation) (Baker & Sinkula, 2005, p. 483). Summarizing the literature, Kyriakopoulos & Moorman (2004, pp. 223224) view market orientation as: (1) a firm-level belief or unifying frame of reference that emphasizes serving the customer (Deshpande et al., 1993; Homburg & Pflesser, 2000) or understanding buyers current and latent needs so as to create value for them (Narver & Slater, 1990; Slater & Narver, 1999); (2) a set of organization-wide processes involving the generation, dissemination, and responsiveness to intelligence pertaining to current and future customer needs (e.g. Kohli & Jaworski, 1990; Jaworski & Kohli, 1993; Kohli et al., 1993); and (3) a firm-level capability that links a firm to its external environment and enables the business to compete by anticipating market requirements ahead of competitors and by creating durable relationships with customers, channel members, and suppliers (Day, 1994a). However, as Kohlbacher (2007) has shown, the market orientation literature focuses mainly on information/explicit knowledge rather than tacit knowledge and on passive organizational learning rather than active knowledge creation, while the concept of joint knowledge creation knowledge co-creation is completely ignored. This paper therefore wants to help to overcome this shortcoming of the market orientation literature. As marketing organizations serve as corporate links between customers and their organizations manufacturing and R&D operations (Riesenberger, 1998), the integration of and knowledge exchange between R&D and marketing has often been discussed (e.g. Song & Parry, 1993; Griffin & Hauser, 1996). Therefore, creating, sharing and managing (marketing) knowledge is particularly crucial in new product development projects (cf. e.g. Moenaert & Souder, 1990; Kusunoki et al., 1998; Madhavan & Grover, 1998; Kusunoki, 2004; Baker & Sinkula, 2005; Dyck et al., 2005; Hoegl & Schulze, 2005; Schulze & Hoegl, 2006; Kohlbacher, 2007; to name but a few). Indeed, according to Bell et al. (2002, p. 82), product development is a particularly salient area for organizational learning inquiry for a number of reasons: it is often a team-based pursuit, it requires a high degree of interfunctional coordination, and it is frequently project based. But, product development is often difficult because the need information (what the customer wants) resides with the customer and the solution information (how to satisfy those

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needs) lies with the manufacturer (Thomke, 2003, p. 244). In an international context, the capability of multinational corporations (MNCs) to create and efficiently transfer and combine knowledge from different locations around the world is becoming increasingly important as a determinant of competitive advantage (cf. e.g. Gupta & Govindarajan, 1991; Doz et al., 2001; Schulz & Jobe, 2001; Asakawa & Lehrer, 2003; Chini, 2004). Hence, creating knowledge [y] has now become a core element of business strategy (Ichijo, 2007b, p. 122) and the ability to manage knowledge effectively is a strategic imperative (Birkinshaw & Sheehan, 2002). Cultural differences and the cross-cultural context seem to play an important role for and influence global knowledge creation and management (cf. e.g. Holden, 2001, 2002; Glisby & Holden, 2003; Holden & Von Kortzfleisch, 2004; Zhu, 2004) and marketing (Thomas, 2002; Holden, 2004; Trompenaars & Woolliams, 2004). Therefore, [c]ross-cultural knowledge management systems among global marketing organizations must take into account learning techniques in various cultures (Riesenberger, 1998, p. 99). Ikujiro Nonakas publications (e.g. Nonaka, 1994; Nonaka & Takeuchi, 1995) have drawn the attention to Japanese firms as knowledge-creating companies, a feature that supposedly has helped them to create the dynamics of innovation and to become world leaders in certain business areas. The difference, it was argued, between Japanese and Western firms, lies in the focus on tacit knowledge of the former and explicit knowledge of the latter (Hedlund & Nonaka, 1993; Takeuchi & Nonaka, 2000). Additionally, the practices of the Japanese knowledge-creating company are also interesting from a marketing perspective, because they demonstrate how companies mobilize all employees to learn more about markets and how to captivate customers (Johansson & Nonaka, 1996, p. 164). As a matter of interest, since its beginning, the theory of corporate knowledge creation has been closely related to the field of marketing due to its focus on new product development projects (Takeuchi & Nonaka, 1986; Nonaka, 1991). However, even though marketing functions lend themselves particularly well for an investigation of knowledge transfer within MNCs, there is a dearth of research on knowledge transfer in the field of marketing (Schlegelmilch & Chini, 2003, pp. 220221). Yet, in an increasingly global business environment, the creation and transfer of marketing knowledge and intra-firm collaboration through knowledge-based approaches to marketing will become more and more crucial as a determinant for corporate competitive advantage and survival of firms (Kohlbacher, 2007). Furthermore, as Kohlbacher and fellow researches (2007) have shown, notions of marketing knowledge habitually focus too strongly on explicit knowledge, even though for international (cross-cultural) marketing it is essential that tacit knowledge is built into constructs of

marketing knowledge. Moreover, the literature to date is completely silent about the application of a knowledgebased approach to marketing as in explicitly international pace cross-cultural contexts. This paper aims at contributing to close these disconcerting gaps and overcome misconceptions by presenting and analyzing case studies of Toyota, revealing its strength and ability for creating and leveraging (marketing and customer) knowledge both locally and globally.

Knowledge creation and transfer in the Japanese automotive industry According to Hanvanich et al. (2003, p. 130), marketing knowledge resides in three key marketing processes: product development management (PDM), customer relationship management (CRM), and supply chain management (SCM). The first two have already been mentioned above. As for SCM, Ahmadjian (2004, p. 227) contends that [k]nowledge creation occurs not only within firms, but also through relationships between firms. In fact, notably the strong supplier networks of Japanese companies and here again especially the ones in the automotive, but also the electronics sector have frequently been put forth in this context (cf. e.g. Cusumano & Takeishi, 1991; Ahmadjian & Lincoln, 2001; Kotabe et al., 2003; Dyer & Hatch, 2004; Liker & Choi, 2004). Furthermore, the benefits of cross-border alliances, foreign partnerships, and JVs even between competitors in general as well as (inter)organizational learning and knowledge creation, levering and transfer/exchange through these collaborations have regularly been discussed in the extant literature (cf. e.g. Inkpen, 2000; Lane et al., 2001; Lyles & Dhanaraj, 2004; Steensma et al., 2005). Indeed, IJVs are viewed as effective conduits that enable MNCs to exploit their knowledge in multiple markets (Dhanaraj et al., 2004) and learning together with trust and control has become one of the most important and studied concepts in the alliance and JV literatures (Inkpen & Currall, 2004). Here, marketing knowledge is an organizational resource that reduces the effects of ambiguity and complexity in cross-border interactions (Simonin, 1999), as well as a primary source of coordinating power in business networks (Achrol & Kotler, 1999, p. 157). In the automotive industry, the JV between Toyota and General Motors (GM) New United Motor Manufacturing, NUMMI has already become legendary and has repeatedly been discussed (cf. e.g. Doz et al., 2001; Liker, 2004; Inkpen, 2005). This paper features a case study of Toyotas second IJV with a competitor, TPCA in the Czech Republic, an emerging economy in Eastern Europe. According to Lyles & Baird (1994), little is known about the effectiveness of current joint ventures in Eastern Europe. Although there has been increasing research interest in this topic lately and more recent studies have helped to shed some light on the performance and success factors of IJVs in Eastern Europe (cf. e.g. Lyles & Salk, 1996; Steensma & Lyles,

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2000; Lyles et al., 2004; Steensma et al., 2005), there is still a strong need for further research, and this paper claims to contribute new insights to the state of the art.

Research methodology
The empirical research presented here is part of a comprehensive long-term, multi-stage research project on Toyota and its way of global learning and knowledge creation. We conceive of our work as theory-building and theory-extending and therefore have chosen a qualitative research approach to explore our assumptions and examine new relationships, concepts, and operational definitions (e.g. Eisenhardt, 1989; Weick, 1996; Flyvbjerg, 2006). Our research is problem-driven, not methodologydriven, so we emphasize our endeavor to grasp the essential nature of Toyotas way of global knowledge creation, using force of example (Flyvbjerg, 2006) to illustrate our reasoning. Specifically for the second case study following Parkhes (1993,p. 248) recommended program for research in IJVs we decided to start our research endeavor with a qualitative study focusing on a single case study. Subsequently, by revisiting and reinterviewing we plan to achieve systematic replications of this case study. Finally, it is our intention to triangulate our data and test our empirical findings and conceptual framework by employing other methodologies that complement our initial case study research and thus raise the level of theory development.

research has significantly advanced since this statement was made in 1993, we believe that a case study research strategy can help to provide the necessary stimulus and shed light on crucial issues like learning and knowledge creation and enabling in IJVs, which are still not fully understood, especially in the peculiar case of two foreign competitors in a transitional economy. Finally, according to Siggelkow (2007, p. 21), there are at least three important uses for case research: motivation, inspiration, and illustration. While the case studies presented in this paper mainly serve as an illustration they are meant to be explanatory as pointed out above our studying Toyota and its global activities has both motivated and inspired our research (questions) and reasoning about global and local knowledge creation in general.

Case study research According to Yin (2003b, p. 2), the distinctive need for case studies arises out of the desire to understand complex social phenomena because the case study method allows investigators to retain the holistic and meaningful characteristics of real-life events, such as organizational and managerial processes, for example. In fact, [o]rganizations constitute an enormously complex arena for human behavior (Dubin, 1982, p. 379) and case studies seem to be the preferred strategy when how or why questions are being posed, when the investigator has little control over events, and when the focus is on a contemporary phenomenon within some real-life context (Yin, 2003b). In such a setting, case studies are explanatory ones, that is, they present data on cause effect relationships, explain how events happened and extend theoretical understandings (Yin, 2003a, b). Hartley (2004, p. 323) states that case study research consists of a detailed investigation, often with data collected over a period of time, of phenomena, within their context, with the aim being to provide an analysis of the context and processes which illuminate the theoretical issues being studied. This is why case studies have an important function in generating hypotheses and building theory (cf. e.g. Eisenhardt, 1989; Hartley, 2004). According to Parkhe (1993, p. 228), inductive/theory-generating/ idiographic research may provide a powerful stimulus that is particularly well suited for the current stage of evolution of IJV research. Even though we acknowledge that IJV

Data and method Our research methodology involved triangulation among a variety of different sources of data (cf. e.g. Parkhe, 1993; Bryman, 2004; Wolfram Cox & Hassard, 2005) including the conducting of both formal and informal on- and offsite interviews (Rubin & Rubin, 1995; Kvale, 1996) with managers as well as scholars and other experts in the field, analysis of archival materials such as company internal documents as well as articles in the business media (Forster, 1994; Hodder, 2000), and an evaluation of existing case studies and other relevant literature (Yin, 2003b). For the first case, interviews were conducted in 2005 in Japan. Senior executives at the Toyota headquarters and middle managers directly involved in the relevant project were interviewed. For the second case, despite our overall research focus on Toyota, we followed Osland and Cavusgils (1998, p. 200) recommendation to collect multiple-party perspectives, this is especially critical when examining international joint ventures that involve parent companies from dissimilar cultures. Therefore interviews were conducted in 2006 with Toyota managers who have already returned from Toyota Peugeot Citroen Automobile (TPCA) to Toyota headquarters including the first TPCA President in Japan as well as with key persons of both Toyota and PSA at TPCA in Kolin, including the President and Executive Vice President. Moreover, additional insights and views were gained from interviewing key persons at TPCA suppliers. This includes qualitative interviews with Toyota key account managers at Bosch Japan (parts supplier) and key account managers and project leaders at Siemens Japan (supplier of factory automation equipment). In the course of the qualitative interviews, semistructured questions in accordance with the theory of organizational knowledge creation and enabling were employed, but the interview partners could nevertheless answer openly and lead the interview mostly. In fact, as Osland & Cavusgil (1998, pp. 200201) have noted, [i]n depth field research methods enable researchers to gain a rich understanding of respondents perspectives, often providing insights that the researcher would not have uncovered from structured questionnaires used in

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traditional surveys. For more details on the following two cases and their analysis, cf. also Ichijo & Kohlbacher (2007) and Kohlbacher (2007).

The Toyota way of creating marketing knowledge in emerging markets


Case 1: Innovative International Multi-purpose Vehicles (IMV) project Initially, Toyota developed and produced cars only in Japan and exported them abroad in order to ensure high quality and to maintain customer trust in the brand. Having steadily been developing its business globally afterwards and because of increasing overseas demand, the need to tailor production to local needs, the opportunity of tax breaks, and in order to save shipping costs, Toyota evolved to the second stage of its manufacturing model: it started to produce vehicles where the market is. This model has been working well in established mass markets such as North America and Western Europe, because the high sales volume justifies the production overhead. Recently, Toyota has identified attractive business opportunities in other developing markets such as BRICs (Brazil, Russia, India, and China) and each has huge growth potential. The strategic challenge to Toyota was whether the previous manufacturing model used in the North American and European markets will apply equally well in emerging markets. In these emerging markets, local demand sometimes fluctuates widely, or may vary greatly from that in Japan, Western Europe, and the US. Equally, demand is usually not high enough to achieve optimal production, as shown in Table 1. The solution for globally operating companies including Toyota has, in the past, tended to be to build manufacturing facilities in developing markets (such as Asian regions) mainly owing to their cheap labor costs. However, in developing and producing cars for these regions, Toyota used to stay reliant on Japanese designers and engineers, rather than exploiting local talent. The

Table 1

Production and demand


To Number of % of vehicles vehicles sold bridge the gap in 2004 produced in 2004 (000 units) 65.8% 15.9% 7.9% 10.4% 2,303 2,103 898 1,415 Export Import Import Import

Number of Number of plants vehicles produced in 2004 (000 units) Japan North America Europe Other regions Total 12 11 6 34 4,284 1,034 515 680

63

6,513

100.0%

6,719

Source: Company information.

problem is obvious. People who are not familiar with local tastes and local unique customer needs are probably not the best to develop and produce cars which will satisfy unique local customer needs. Growth rates in emerging markets are significant and a growing number of companies are trying to gain and sustain competitive advantage. The victors in this tough competition are likely to be those companies able to satisfy unique customer needs efficiently and effectively and to achieve this, a new way of developing business in emerging markets might be necessary. Innovation in the business model for such emerging markets has surfaced as an important agenda point for Toyota. Finally, the materialization of free trade agreements in different parts of the world has presented tremendous opportunities for Toyota to allow its manufacturing model to evolve to its third stage: a global production and supply network that will solve, efficiently and effectively, the problems of local production in emerging markets. In 2004, Toyota announced a break-through initiative called the Innovative International Multipurpose Vehicles (IMV) Project, which aims at increasing the self-reliance of overseas manufacturing facilities in such a way as to optimize overall worldwide production, especially in emerging markets, by both understanding common needs and paying sufficient attention to unique local needs. The initiative is led by Toyotas subsidiaries, and in this business model, Toyota upgraded and expanded plants in Thailand, Indonesia, South Africa, and Argentina. These four main IMV production and export bases will supply Asia, Europe, Africa, Oceania, Latin America, and the Middle East with a total of five allnew IMV vehicles (pickup trucks and multipurpose vehicles). This project is now dependent upon close collaboration between Toyota in Japan and its subsidiaries in emerging markets. Figure 1 gives an overview over the development stages of Toyotas global production. Toyotas aim is to increase the ratio of parts imported from these Asian and Latin American countries from 60 to 70% to as close as possible to 100% in order to enhance the self-reliance of local Toyota subsidiaries and to accomplish lower procurement costs. The plants for the IMV project were chosen as assembly and export bases because they have both sufficient manufacturing experiences and skilled and experienced managers and labor force. The focus of new IMV car development is not on passenger cars for developed markets in which much more varied consumer preference demands differing levels of comfort, styling, and handling. These IMV cars are specifically created for emerging markets with their particular needs and demand for more competitive pricing. Indeed, IMV cars are only for emerging markets and will not be sold in other regions such as Japan, the US, and Western Europe. For the first time in its history, Toyota is producing and selling cars that are not produced and sold in Japan. In this respect, the IMV initiative is a very innovative strategy for Toyota. Within these emerging markets, the

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Past

Now/ Future

1st stage

Japanese production and export

2nd stage

Local production bases in key markets

local models

IMV IMV 3rd stage


Interconnected multinational production bases

Figure 1

Stages of global production (Source: adapted from company information).

study of the unique local needs and then the developing, manufacturing, and supplying of cars which closely meet them promises competitive advantage. Learn local is the key to local success. But there is a global dimension, too. IMV cars assembled in Thailand and Indonesia are used both for local consumption and are exported to different countries, particularly emerging markets. Surplus IMV cars assembled in Argentina are exported to Central and South America, and those assembled in South Africa are shipped to Africa. This global, cross-country collaboration is another key to the success of the IMV project. While paying attention to local unique needs in each region, Toyota tries to accomplish effective use of resources worldwide to provide high quality cars with cheaper cost. Act global, learn local is thus another winning formula for the IMV project. As a result, IMVseries vehicle production including that in countries other than the four main production bases is projected to exceed 500,000 units in 2006. The success of IMV is dependent upon the leadership of local engineers. Historically, Toyota used to recruit only Japanese nationals to be designers and engineers, first assign them to work in mother plants in Japan to gain knowledge and skills, and then transfer them to overseas factories. Product development stayed within Japan. Toyota realized, though, that it did not have sufficient Japanese designers and engineers to be sent to the growing number of overseas plants, and, moreover, that local talent was available that would be helpful for identifying common customer needs in emerging markets. Therefore, in the planning and development stages this meant listening to dealers and customers in Asia, Africa, and South America and repeatedly debating the issues among members of the design and engineering teams. Nowadays, Toyota never underestimates the importance of local knowledge. The success of the IMV is dependent upon human resource development in Asia and more efforts are being made in this area. The advanced digital technology of the Global Production

Centre, established in 2003, is being used to train its managers and workers in the IMV project factories. The merit of this technology is that visual training materials can be accessed by every overseas factory at the same time, thus allowing a large number of employees to be trained rapidly and consistently. Toyota estimates that the Centre can increase the efficiency of workforce instruction by a factor of 610. Therefore, in addition to improving production efficiency and quality, the Global Production Centre can speed up the preparations for model changes at overseas factories as they respond to changes in customer needs.

Case 2: Toyota Peugeot Citroen Automobile (TPCA) Toyota Peugeot Citroen Automobile Czech (TPCA) is an IJV between Toyota Motor Corporation and PSA Peugeot Citroen in Koln, Czech Republic. Both companies own exactly half of the shares (50/50 JV). After an agreement in July 2001, the two automakers announced on 9 January 2002, the signing of an official JV agreement to establish TPCA. It is Toyotas sixth manufacturing company in Europe. The TPCA factory alone employs about 3000 Czech employees, and indirectly ensures an additional 7000 jobs in all areas from the production of automobile components to cleaning services. With this unique automobile partnership and its joint plan for the development and production of small compact vehicles and the construction of a new manufacturing factory, Toyota and PSA decided to react to the changing European customer market and to found a whole new category of small modern and technologically advanced vehicles. In fact, both companies see growing demand for such cars in Europe, and the new-platform vehicles to be built in the Czech Republic will be marketed under the Toyota, Peugeot, and Citroen brands. The total investment into the project on the grass field including R&D and business startup costs has surmounted 50 billion crowns (approximately 1.5 billion euros) and finally started manufacturing on 28 February

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2005. The plant manufactures 300,000 small gasoline and diesel cars annually to be sold in Europe under both automakers brands, that is, 200,000 units for Peugeot and Citroen and 100,000 for Toyota. The three, all-new small cars produced on a common platform are: the Citroen C1, the Peugeot 107, and the Toyota Aygo. The cars built on this new platform have jointly been developed by the two companies. They are a modern, four-seat model boasting the most sophisticated technologies in terms of safety, reliability, environmental protection, and urban mobility. Equipped with the latest generation of 1.0-l gasoline engines and 1.4-l diesel engines, they are especially fuel-efficient. The project offers clearly differentiated models and specific styles for the vehicles of the two groups while guaranteeing strong commonality for the car structure and components. In launching this new vehicle concept, Toyota and PSA have introduced a brand new offer of small-size cars, which will complement their product lines. This decision to jointly introduce a new class of cars, positioned below current entry-level models is in order to respond to the changing needs in Europe, a market where demand for compact vehicles remains as strong as ever and is forecast to increase in the years ahead. Therefore, TPCA paves the way for a new market of vehicles, which thoroughly retain all the essential features of a real car, and offer, at attractive prices, efficient solutions to environmental and urban mobility-related requirements. Target customers also include current buyers of used or outdated cars. In fact, primarily designed for European markets, this new car concept has been conceived to meet the changing needs of local customers. Cars produced using this common platform have a three-fold advantage: they have prices lower than those in the current small-car segment, feature a high-level of standard safety performance, and offer excellent environmental achievements. The joint production at TPCA not only allows for a reduced cost but also a connection of the best of both automobile factories: the untouched production system of Toyota with the excellent knowledge of the European market of PSA. Therefore, Toyota is in charge of development and production while PSA is responsible for procurement. Toyotas Polish plant Toyota Motor Manufacturing Poland Sp. (TMMP) in Walbrzych, Poland was established on 7 June 2002, as Toyotas first European transmission plant will expand to supply manual transmissions and 1.0 l gasoline engines for the Czech plant. PSA Peugeot Citroen will supply 1.4 l diesel engines. Nearly all other components will be sourced locally. In fact, since the establishment of the JV, many Toyota-affiliated parts makers have set up shop in Central and Eastern Europe, and about 20 have signed supplier agreements with TPCA. PSA views this cooperation between two independent companies as a further materialization of the PSA Groups strategy aimed at reaching agreements on the joint development and production of mechanical components and platform

elements, with the objective of obtaining economies of scale. The TPCA plant is the fruit of a successful cooperation project that allowed the two global carmakers to combine their knowledge of product design, styling, production and supplier relationships, while learning from each others corporate cultures, technologies and processes, as there seems to be very good teamwork and cooperation between Toyota and PSA. This led to an exchange of a wealth of specific know-how: PSAs knowledge of small cars in Europe and its expertise in purchasing activities, and Toyotas skill in development, manufacturing and production processes. Indeed, Toyota learns from PSA mostly about purchasing issues, supplier relationships, both from a European and a general point of view, and even about production methods and shift management. On the other hand, PSA learns about Toyotas management style and the Toyota Way, and TPS and the production process. This mutual learning also leads to new joint ideas and knowledge co-creation. As of March 2006, there were 38 expatriates employed at TPCA: 29 from Toyota and nine from PSA. All expatriates have management functions and include the President (Toyota) and Vice-President (PSA). They usually stay in Czech Republic for about 1.5 years before returning to their respective headquarters. Local staff are sent to Toyotas other European plants (Turkey, U.K., France), and in the case of managers also to Toyota headquarters in Japan, for training for a period of 16 months. This ensures that directly and interactively learn the Toyota Way and that local knowledge from TPCA can also be transferred back. Besides, over time, responsibility is handed more and more over to local staff after they have been trained by experts from Toyota and PSA. Supported by their spirit of teamwork and reinforced by a favorable national environment in terms of solid industrial experience and a quality education system, TPCA completed all stages of the cooperation successfully in terms of deadlines and results. This cooperation between independent carmakers has provided a fast, cost-efficient response to market demand through the sharing of expertise and experience. As a matter of fact, levering synergies and fostering mutual knowledge sharing and creation between the two partners is one of the most important goals and merits of this strategic alliance. Here, Toyota consistently follows its new learn local, act global strategy by feeding back the newly created and acquired knowledge to its headquarters and spreading it also to other subunits. In early 2006, the Toyota Aygo was doing extremely well on the forecasted resale values of the major leasing companies and the launch was widely seen as successful (Radler, 2006). Unlike the mature market of Western Europe, the Eastern European automobile market offers much room to grow, with an automobile diffusion rate about half that of countries belonging to the European Union (EU). On joining the EU in May 2005, the five Central European nations have become subject to the

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blocs tighter environmental regulations, so new car demand will likely increase as older cars are scrapped. As a result, Central and Eastern Europe will be vital for Toyota if it wants to achieve its goal of selling 1.2 million units a year in Europe by 2010. TPCA will help to build a strong production base and will serve Toyota as a springboard for expanding its presence in Europe.

Multinational production network


Subsidiaries

Global optimum production network


Local Affiliates

Regional Headquarters TMC Global Headquarters

Discussion
The Toyota way of strategic knowledge creation The cases have shown how Toyotas knowledge creation in the automotive development has changed from creating new knowledge in Japan and transferring it from the headquarters to subsidiaries and affiliations around the globe to a focus of creating knowledge and unlocking tacit customer knowledge in foreign markets by local staff and together with local partners (cf. also Ichijo & Kohlbacher, 2007). With its new strategy of learn local, act global for international business development, and its knowledge-based approach to marketing, Toyota proved successful in tapping rich local knowledge bases, thus ensuring its competitive edge and global lead in the automotive industry. Indeed, this is the first time in its history that Toyota is producing and selling cars which are not produced and sold in Japan. In this respect, the IMV initiative and TPCA were very innovative strategic decisions for Toyota. Figure 2 shows how Toyotas way of global production has evolved from a centralized multinational production network to the current global optimum production network, where regional headquarters and local affiliates have gained greatly in participation and responsibility, and where supply bases respond to local and regional needs. More and more, this is not only true for knowledge creation and production, but also for product development, thus evolving to a strategy incorporating the new practice of global product development as described by Eppinger & Chitkara (2006). Furthermore, it is also important to note and understand the reasons and causes that induced this change in Toyotas knowledge creation and car development strategy. Different reasons can be identified and traced back to different variables and the changes in environment as their trigger. These reasons can basically be divided into two main trends in the automotive industry: First of all, the maturity of the Japanese automobile market made Toyota look more intensively for new opportunities abroad. As explained above, it originally found these in North America and Europe. But due to fierce competition and beginning stagnation in some of these markets, Toyota following other major carmakers turned to developing markets such as BRICs and Eastern Europe. In fact, this phenomenon that MNCs are increasingly viewing emerging markets as potential sources of future growth is not limited to the automotive industry and has become a more and more important issue recently (Hoskisson et al., 2000; London & Hart, 2004). Historically,

Multinational production network

Global optimum production network

Produce vehicles
where they will be sold Numerous subsidiaries - 46 business entities in 26 countries /regions

Supply bases
responding to regional needs

Complementary
network

Global harmony

Figure 2 Evolution of Toyotas global production (Source: Authors own illustration).

JVs as well exporting through a local agent were the preferred entry modes for Japanese MNCs into European markets, with financial costs and the costs concerning uncertainties and risks deterring them from full ownership entry modes such as acquisitions and greenfield investments. However, especially with the development of the European integration, JVs have become less attractive (Ando, 2005). But, the case of TPCA as well as the other JV in Poland is different. In contrast to West European countries, emerging economies like Poland and the Czech Republic are new and less known ground for Toyota (and Japanese MNCs in general), thus possibly entailing higher uncertainty costs. Additionally, the collaboration with PSA is expected to result in mutual learning and other advantages for Toyotas European operation and its strategy of using external, local resources (Ando, 2005). This attempt by organizations to realize their objectives through cooperation with other organizations rather than in competition with them is called cooperative strategy (Child et al., 2005). As for the TPCA case, Toyota considers this collaboration as one of its efforts to meet consumer demand for low-cost, fuelefficient and environment-friendly vehicles and believes that cooperating with PSA will provide a capable response to the expanding small passenger car market. Second, with all major global players penetrating into the emerging markets, competition intensified quickly and severely. The high price-sensitiveness of the consumers in the new markets and differences in taste and buying behavior called for a change in strategy.

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Finally, Toyota came up with a new strategy for global business development learn local, act global which meant learning about unique local needs and requirements and adapt to them while doing global coordination for the operational excellence. The strategy also meant systematically tapping tacit local knowledge from various sites around the world, blending and integrating it, and finally sharing and applying it on a global scale. Thus, this strategy goes far beyond mere local customization and cross-country collaboration as it is about a systematic and continuous way of leveraging local and global knowledge and about co-creating new knowledge with a variety of local and global partners (including competitors). This is also reflected in Toyotas outstanding global sales performance and its high profitability (cf. e.g. Liker, 2004; Ichijo & Kohlbacher, 2007). As a consequence, it is probably safe to say that Toyota has made the leap from simply being a global projector to a truly metanational company. Indeed, this need to unlock the potential of globally dispersed knowledge has been called the metanational imperative (Doz et al., 2001) and the term front-line management has been used to describe a form of management, where the workplace is recognized and valued as the center of knowledge creation and in which knowledge-creation resources [y] and processes [y] are concentrated at the front line of the company (Yasumuro & Westney, 2001, p. 178). The fact that in basically any company, critically important knowledge resides in the workplace on the factory floor, within sales and service organizations that deal directly with customers, at the bench in the R&D lab, in short at the front lines of the company (Yasumuro & Westney, 2001, p. 178), underscores the importance of tacit knowledge and its strategic creation and management (Ichijo, 2007b). Indeed, valuable knowledge in the marketplace is unique and mostly context-specific [and] often difficult to obtain (Schlegelmilch & Penz, 2002, p. 7) and the most influential knowledge is likely to be tacit (Day, 1994b, p. 10). But, this is precisely the kind of knowledge, which if discovered and exploited, can be harnessed to secure competitive advantage (Kohlbacher et al., 2007). As our study of Toyota clearly demonstrates, the marketing knowledge was acquired in a specific cultural context and thus might be sticky and difficult or even impossible to transfer (Bjerre & Sharma, 2003; Schlegelmilch & Chini, 2003). However, as Day (1994b, p. 17, 23) correctly notes, [l]ocal market knowledge [y] wont benefit the rest of the company unless it is shared so that other parts can consider its value to them and [m]arket knowledge is not fully captured in a usable form until the lessons and insights are transferred beyond those who gained the experience. As has been shown above, by consistently following its learn local, act global strategy, Toyota is feeding back newly created and acquired knowledge to its headquarters and spreading it also to other subunits. Indeed, in Toyotas continuous learning system, [t]ough analysis, reflection, and communication of lessons

learned are central to improvement as is the discipline to standardize the best-known practices (Liker, 2004, p. xvi). As the cases have illustrated, Toyota can be seen as a firm with a strong market orientation, possessing the basis for rapid adaptation to customers manifest and latent needs, which may translate into superior new product success, profitability, market share, and, perhaps, sustainable competitive advantage (Baker & Sinkula, 2005, p. 483). Hence, we can conclude that Toyota has successfully implemented knowledge-based marketing, which is a knowledge management approach to marketing that focuses both on the exploitation (sharing and application) and exploration (creation) of marketing knowledge from contexts and interactions in order to gain and sustain competitive advantage (Kohlbacher, 2007; Kohlbacher et al., 2007). In fact, [i]n a world where other firms are seeking to expand their market share, successful firms often can only stay ahead of the competition by exploiting new knowledge to offer improved products or processes that deliver new forms of added value to their customers (Chaston, 2004, p. 155). However, [t]he creation of knowledge is not simply a compilation of facts but a uniquely human process, one that cannot be reduced or easily replicated, which among other reasons is why effective management of knowledge, that is, knowledge creation, sharing, protection, and discarding depend on an enabling context (Ichijo, 2007a, p. 85). Companies can generate such an enabling context for knowledge management and creation by using five knowledge enablers: (1) instilling a knowledge vision, (2) managing conversations, (3) mobilizing knowledge activists, (4) creating the right context, and (5) globalizing local knowledge (Ichijo, 2004). As a matter of fact, Toyota has basically introduced all five knowledge enablers into its organization (cf. also Ichijo & Kohlbacher, 2007). While usually all enablers play an equally crucial role, for the analysis in this paper, the fifth enabler is of particular relevance. Globalizing local knowledge considers the complicated issue of knowledge dissemination globally (von Krogh et al., 2000). Ichijo (2007a, p. 92) notes that it is crucial for the competitive advantage of a corporation operating globally that knowledge created in a certain local unit is disseminated to other local units effectively, efficiently, and fast, since sharing knowledge globally constitutes competitive advantage of a corporation. Toyota achieves this by feeding back local knowledge and best practices to its headquarters and by circulating these further to other global units through its global production centers as well as by job and country rotation of its staff. Given the necessity for satisfying the local unique needs, disseminated knowledge should not be used immediately without any concerns for local uniqueness and accommodation and necessary modifications. However, by globalizing local knowledge, corporations will be able to reduce time and cost for knowledge creation initiatives. Globalizing local knowledge is, indeed, a major challenge; it is one of the most important

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responsibilities of the corporate headquarters managers and those local managers who must cooperate in order to make it happen. In order to facilitate globalizing local knowledge, building enabling infrastructure is critically important. In other words, this fifth enabler does not work effectively without the other four enablers. Social networks, mobility, shared experiences among people working in different regions will be able to overcome the tensions accompanying globalizing local knowledge (Ichijo, 2007a). In the case of an IJV, knowledge sharing and creation can occur at different levels. Figure 3 illustrates it for the concrete example of TPCA. Obviously, knowledge will not only have to be created locally at TPCA but also between the JV (child) and the partner firms (parents). Moreover, the process of transferring newly created knowledge at TPCA to the parents is also critical. Inkpen (1998, p. 79) goes even as far as to state that [w]ithout active parent firm involvement in the alliance learning process, learning will not occur. Note that the term learning here roughly means the same as knowledge sharing. The concept of knowledge co-creation is drawn from the framework of Kohlbacher (2007), which emphasizes the co-creation of knowledge with various entities for example suppliers, customers, business partners, and competitors in the business ecosystem (cf. also Nonaka & Toyama, 2005). Indeed, knowledge co-creation with selected key stakeholders has become an essential part of Toyotas strategy for global knowledge creation. TPCA and NUMMI are concrete examples for knowledge sharing and co-creation with

competitors, and suppliers are also integrated into the improvement of the car-manufacturing process itself, continuously creating new knowledge that is difficult, if not impossible, for competitors to imitate (cf. also Ichijo, 2007b).

Lessons learned for global knowledge management In the age of increasing globalization, knowledge management constitutes a core competence. This is especially the case for companies that operate business across geographical boundaries. Whatever the motive, companies increasingly distribute tasks over an expanding geographic, sociopolitical, demographic, and cultural area. However, while it is easy to say sharing knowledge across regions, businesses, and functions, or to discuss the knowledge-based economy in general terms, the human processes involved creativity, conversation, judgment, teaching, and learning are difficult to quantify (Ichijo, 2007a, pp. 8485). It is probably safe to say that Toyota has brought the concepts of front-line management, global knowledge creation and enabling to perfection through the implementation of its learn local, act global strategy and thus has mastered the challenge of applying a knowledge-based approach to marketing. Thus it has also mastered the challenge of identifying, nurturing, and re-deploying knowledge resources within the MNCs global operations (Asakawa & Lehrer, 2003, p. 32) and of unleashing the power of tacit (internal and external) knowledge. As Hansen & Nohria (2004, p. 22) correctly note, the ways for MNCs to compete successfully by exploiting scale and scope economies or by

Toyota Motor Corporation (TMC) Japan

(1)
Learning Knowledge co-creation

Peugeot Citron SA (PSA) France

Learning Knowledge cocreation

Toyota Peugeot Citron Automobile (TPCA) Czech Republic

Figure 3

Knowledge sharing and creation in and through TPCA (adapted from Kohlbacher, 2007, p. 152).

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(3)

ow

Le led arnin ge g cocre a

tion

(2)

Alliance knowledge

(2)

g tion rnin rea Lea co-c ge led ow Kn

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taking advantage of imperfections in the worlds goods, labor and capital markets are no longer profitable as they once were, and as a result, the new economies of scope are based on the ability of business units, subsidiaries and functional departments within the company to collaborate successfully by sharing knowledge and jointly developing new products and services. Besides, Ghemawat (2005) has shown that it is often a mistake to set out to create a worldwide strategy and that better results come from strong regional strategies brought together into a global whole. In fact, these statements strongly support the need for a global knowledge creation strategy as implemented by Toyota. However, even though Toyota has been identified to have gone furthest in exploiting the power of regionalized thinking (Ghemawat, 2005, p. 100), the application of a learn local, act global strategy is by no means restricted to Toyota or the automotive industry. Of course, Toyota is a pioneer and still one of very few truly metanational companies for other examples, see for example Doz et al. (2001) and Ghemawat (2005) but their success seems to prove them right and the Toyota Way could serve as an excellent role model for other firms. Note that this does not imply a mere copying of Toyotas strategy and processes but a carefully deployed adaptation to the specific context and needs of each individual firm and industry. Indeed, the basic logic of the strategy always remains the same but its implementation and operationalization may have to be adapted to each companys specific circumstances. Moreover, the Toyota Way never stands still but is constantly evolving and refined through kaizen processes. Grasping this need for continuous learning and improvement will be a crucial criterion for competitive advantage and corporate success and survival in the knowledge economy. This is in line with Kohlbachers (2007) finding that especially when introducing new products or when entering new markets, knowledge creation and transfer and intra- as well as inter-firm collaboration prove critical for the success of the projects. Therefore, he concluded that applying knowledge management concepts and practices to the knowledge-intensive field of marketing and to marketing functions bears out particularly efficient and effective. Last but not least, as large parts of marketing knowledge are tacit and hard to codify, face-toface communication and the integration of local staff into marketing processes and decision-making is an important factor for global marketing knowledge sharing that leads to successful marketing and sales achievements (Kohlbacher, 2007). Finally, the lessons learned from the Toyota Way of global knowledge creation can be summarized as the following propositions: (1) as knowledge has become a critical source for competitive advantage, marketing and management in general has to become knowledge-based; (2) tacit knowledge needs to be leveraged both on a global and local level; tapping tacit local knowledge, blending

(3) (4)

(5)

(6)

(7)

and integrating it and finally applying it globally is a sine qua non for strategic knowledge management; global as well as local knowledge creation have to be nurtured by a set of enabling conditions; in the network economy of the 21st century, a decentralized global knowledge creation strategy involving customers, suppliers, other partners and even competitors is more effective than a centralized one; IJVs can be a useful vehicle not only for knowledge accessing and acquisition but also for knowledge co-creation on the local and global level; a learn local, act global strategy is especially effective when entering new, emerging markets and in collaborating with local agents like customers, suppliers, business partners and even competitors; this strategy goes far beyond mere local customization and cross-country collaboration; it is about a systematic and continuous way of leveraging local and global knowledge and about co-creating new knowledge with a variety of local and global partners (including competitors).

Implications for further research Although carefully researched, documented and analyzed, our study is subject to some limitations. First of all, the insights gained were derived and concluded from two single probably even unique cases, even if this is exactly what case study research is all about (Stake, 2000). Indeed, the common limitations of generalizability of such field research are well documented (cf e.g. Eisenhardt, 1989; Yin, 2003b; Hartley, 2004), though analytic generalization in contrast to statistical generalization is possible (Numagami, 1998; Yin, 2003b; Hartley, 2004). Therefore, it would prove helpful to conduct further case studies of Toyota, but also of other global players in order to analyze the process of interorganizational knowledge creation in different environments and under different conditions. Besides, the propositions put forth above need to be refined and the resulting hypotheses quantitatively tested. It will be particularly important to find out under which circumstances both company internal and external the Toyota best practices are effective and under which conditions they need to be adapted and how. Finally, our cases presented two very new and recent projects at Toyota. A follow-up investigation in the next couple of years longitudinal case studies might help to gain additional insights. Besides, Toyota might start similar action in other countries with different environments and economic conditions, thus providing an opportunity for further research as well. Last but not least, researchers and practitioners should note that the Toyota Way is not necessarily a silver bullet or a single right approach. Indeed, depending on each companys individual circumstances, the processes may look different and a particular knowledge-based approach to marketing and global management will have to be developed and strategically managed.

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Tapping tacit local knowledge in emerging markets

Kazuo Ichijo and Florian Kohlbacher

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About the authors


Kazuo Ichijo is Professor at the Graduate School of International Corporate Strategy at Hitotsubashi University in Tokyo. He received his B.A. (social sciences) and M.S. (social sciences) from Hitotsubashi University and Ph.D. (business administration) from the University of Michigan. He published numerous books, including Enabling Knowledge Creation: How to Unlock the Mystery of Tacit Knowledge and Release the Power of Innovation (with Georg von Krogh and Ikujiro Nonaka), Oxford University Press, 2000. Florian Kohlbacher is a research fellow at the German Institute for Japanese Studies in Tokyo. From April 2005 to March 2007 he was a visiting researcher at Hitotsubashi University, Tokyo, where he conducted research in knowledge management, international business and marketing. He is the author of International Marketing in the Network Economy: A Knowledge-based Approach, Palgrave Macmillan, 2007.

Knowledge Management Research & Practice